Handling holiday entitlements

Disputes over annual leave can lead to workplace tension, grievances and tribunal claims, making it critical for managers to understand the rules, as Anne Morris explains

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Statutory holiday entitlement applies to workers on all contract types, including full-time, part-time and zero-hours contract workers, as well as permanent, temporary, agency and casual staff. It does not extend to self-employed individuals. 

Under the Working Time Regulations 1998, workers are legally entitled to at least 5.6 weeks a year of paid annual leave. Those working five days a week are entitled to 28 days’ paid holiday a year. The statutory minimum is capped at 28 days, meaning those working more than five days a week are only entitled to 28 days of statutory leave per year.

Holidays should be managed during a ‘leave year’. The employment contract or written statement should say when this period is; for example, January to December.

If you are requiring workers to use their holiday entitlement to take bank holidays, you should make this clear in your employment contracts or annual leave policy.

Holiday leave is accrued during absence from work because of sickness or maternity, paternity or adoption leave.

Enhanced annual leave 

Employers can choose to award staff more than the minimum statutory allowance, but not less. If you are offering more than 5.6 weeks’ holiday, when calculating entitlements, the first 5.6 weeks will be considered statutory entitlement, and anything over this will be considered ‘contractual’ holiday.

Part-time workers

Part-time workers are also entitled to 5.6 weeks of leave; their entitlement is calculated by multiplying the number of days a week they work by 5.6. For example, someone working four days a week would be entitled to 22.4 days a year; ie, 4 x 5.6.

Part-year employees 

Following Harpur Trust v Brazel, part-year employees should no longer have their paid holiday pro-rated. Instead, their holiday pay should be calculated using hours worked over a 52-week average.

New joiners 

Workers are only entitled to time off that they have accrued since the start of their employment, on a pro rata basis. Holiday is accrued for each month worked at a rate of 1/12 of their full year entitlement. For example, if someone working five days a week has worked for six months, they can take half of the full year entitlement; ie, 14 days.

Holiday pay rules 

Holiday pay should be paid at a rate of a week’s pay. This is calculated according to the hours someone works and how they are paid for the hours. It should also include commission, guaranteed overtime and voluntary overtime that is regularly worked, standby payments and allowances.

Unused leave and carry over

In some cases, unused holiday can be carried over to the next year. If there is no contractual provision allowing a carry over, the general rule is that workers entitled to 28 days leave can agree with their employer to carry over up to eight days. Any additional contractual leave unused can also be agreed to be carried over.

Some employers may adopt a ‘use it or lose it’ rule, whereby the worker loses their entitlement if they declined to take this time. There is no automatic right to be paid for holiday entitlement that was not taken, unless the worker’s contract has ended.

Employees who have been on maternity leave can carry over up to 5.6 weeks of unused days into the next holiday year.

As workers on long-term sick leave continue to build up holiday entitlement, they are allowed to carry over four weeks’ unused leave, unless the employer allows for more, and this time must be used within 18 months of being carried over (Plumb v Duncan Print Group).

Unused holiday and leavers 

Workers are entitled to be paid for untaken statutory holiday in their final pay, as payment in lieu. How much they are owed depends on how much of the year they have worked by the date their employment ends. This should be paid at the applicable holiday pay rate.

If the employee has taken more holiday than their entitlement at the time they leave, the employer can deduct the amount owed from their final pay, provided the employment contract allows this or it has been agreed in writing with the worker in advance.

Companies should generally proceed with caution when making deductions from pay; if the worker believes you have made a mistake, they may be able to bring a claim for unlawful deduction of wages. 

Best practice when handling annual leave requests

  • Make effective use of employment contract terms and well-maintained annual leave policies to clearly state holiday entitlement and the annual leave request process. 

  • It is beneficial for employers to have as much notice as possible for leave requests to allow for planning, but employees should as a minimum give twice as much notice as the period of leave being requested, unless their contract or company annual leave policy states otherwise. 

  • Be consistent in how leave requests are dealt with to avoid unfair treatment and unlawful discrimination. For example, a policy of prioritising parents’ leave requests during the summer holidays may discriminate against those without children. A first-come, first-served approach is usually a fair method. 

  • Train managers to ensure compliant and consistent implementation of holiday entitlement rules. 

  • Keep communication open and decisions transparent to avoid misunderstandings and grievances. 

  • Employers can refuse annual leave requests, provided they have a good reason; if they do have to cancel an existing booked holiday, give at least the same amount of notice as the period of leave cancelled plus one day. However, employers cannot prevent workers from taking their full year entitlement.

Anne Morris is managing director of DavidsonMorris